Fort Wayne.

• Author: Guthrie, Thomas L.

Manufacturing is disappearing. No, it's manufacturing employment that's disappearing. As shown in Figure 1, the total value of goods manufactured in the U.S. has declined approximately 6 percent since mid-2000, but that's not exactly a disappearing act. Furthermore, when the 6 percent decline is juxtaposed with the almost 60 percent increase in the last decade, it appears modest indeed. Isn't that a typical characteristic of recessions?

[FIGURE 1 OMITTED]

Look for the value of goods manufactured to reach new highs in the next twenty-four months as the current recovery gains momentum. That's not exactly a disappearing act.

What's disappearing is manufacturing employment. In 1978, there were over 19.3 million employed in manufacturing in the nation. Last November, there were 14.5 million. That's a total decrease of 25 percent, or essentially 1 percentage point per year.

Between 1978 and last November, the total value of goods manufactured in the U.S. increased 90 percent. It had doubled as of mid-2000. Why the disconnect? Productivity--the increase in output per hour of labor.

Between 1978 and 1995 nonfarm business productivity grew at an average annual rate of about 1.2 percent. From 1996 to the fourth quarter of 2001--the end of the last recession--productivity averaged around 2 percent. Since the recession ended, productivity has expanded at an annual rate of more than 5 percent. In third quarter 2003, productivity grew at a seasonally adjusted annual rate of 9.4 percent. In classic understatement, Federal Reserve Chairman Alan Greenspan has described the surge in productivity as "startlingly large."

Frankly, the third quarter 2003 productivity number is too high to be believed, so it more than makes a point. And the point is that advances in productivity have more than accounted for the economy's post-recessionary growth. It's why a million jobs have disappeared since the start of the recovery in November 2001.

In the last three years, manufacturing employment in the Fort Wayne metropolitan area (1) has decreased by approximately fifteen thousand; or more starkly, basically one in every five manufacturing jobs has disappeared over the last thirty-six months (see Figure 1).

Due to the massive fiscal and monetary stimuli, the U.S. economy is now growing sufficiently fast to begin generating jobs (see "The U.S. Economy" on page 1). When economic growth exceeds productivity growth--which is about to occur--the modest employment gains will...